December manufacturing PMI continued to show contraction. The index reading was 48.2, down from 48.6 in November. Business conditions have now worsened in each of the past 10 months. Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December.
As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices.
A renewed contraction of manufacturing output weighed on the headline index reading although the rate of reduction was modest overall. But it was the seventh time in the past eight months that production has fallen. Anecdotal evidence suggested that relatively weak market conditions and reduced client demand had prompted firms to cut output in the latest survey period.
Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panelists, lower staff numbers were the result of company down-sizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high.
Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
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